Tiger Brands Limited (JSE:TBS) is about to trade ex-dividend in the next 3 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Meaning, you will need to purchase Tiger Brands' shares before the 15th of January to receive the dividend, which will be paid on the 20th of January.
The company's next dividend payment will be R06.84 per share, on the back of last year when the company paid a total of R10.34 to shareholders. Last year's total dividend payments show that Tiger Brands has a trailing yield of 3.6% on the current share price of R0289.71. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
View our latest analysis for Tiger Brands
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Tiger Brands paid out more than half (55%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Tiger Brands generated enough free cash flow to afford its dividend. Fortunately, it paid out only 42% of its free cash flow in the past year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by Tiger Brands's 6.4% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Tiger Brands has increased its dividend at approximately 1.6% a year on average.
To Sum It Up
From a dividend perspective, should investors buy or avoid Tiger Brands? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.